Nashville’s real estate scene is not for the faint of heart.
The Metro Codes Department issued $5.88 billion worth of permits this past fiscal year. The sum creates a new record — up nearly 18% from the previous fiscal year.
The city has continued to attracted major out-of-town developers and multiple high-dollar projects over the past year, making it difficult for new developers to make a play in the competitive market.
Adam Rosenberg came to Nashville in 2014 with a big vision. The founder of Nashville-based AGB Real Estate started purchasing parcels of land in SoBro with the hopes of creating a 200,000-square-foot luxury mixed-use development — a concept that was relatively new to Nashville at the time.
Rosenberg had difficulty garnering the support from large institutional investors for this type of project before the pandemic, and plans for the downtown development ultimately fell through.
“I'm not the first entrepreneur and last entrepreneur to have a good idea. It can just be a little bit early," Rosenberg said in an interview.
After leaving Nashville to pursue opportunities in New York, Rosenberg returned to the city in 2020 to a very different market.
“The entire perspective on Nashville real estate had changed. The cost of apartments and living in Nashville skyrocketed.”
Adam recognized the potential in the city long before major out-of-town players entered the market, but now he was struggling to enter it himself.
“’You have to be here or you’re not a true developer.’ This sentiment was very much going in 2020,” Rosenberg said.
It was a “lightbulb moment” for Rosenberg when he found a “pocket of opportunity” in the market: converting motels into affordable housing.
Rosenberg was able to break into the Nashville real estate scene by converting dilapidated motels in the outskirts of the city into affordable housing developments. He's cutting the ribbon on his second Nashville project today.
“We're looking to really invest in Nashville because of the groundswell that exists. In learning how difficult hospitality was to finance, to build and to maintain with ongoing concerns from the investment perspective. The prospect of taking a motel and converting it was extremely attractive,” Rosenberg said.
Rosenberg says his work in conversions does not just provide personal benefits, it also provides a solution for one of the biggest issues the city is currently facing: the lack of affordable housing.
“A lot of the motel owners aren't investing significant amount of capital to keep them updated and in good condition. They're typically blighted, being used for illicit activities such as drugs and sex work,” Rosenberg said. “We work with the [Metro] Council and people in those districts and say, ‘We'll take this asset and will completely gut renovate it and convert it into a place that can be used by your constituents or the city at large as a place that they can live and call home and really have attainable housing that fills the need across the city,'” Rosenberg said.
As the development industry continues to struggle amid high interest rates and construction costs, Rosenberg says financing is much easier when it comes to these conversions.
“A lot of people have trouble closing on deals now and quickly moving through the redevelopment process. We can quickly renovate and then lease it up. At that point we can get permanent financing significantly cheaper than the higher risk development financing,” Rosenberg said.
Another perk of conversions is the shortened timeline, according to Rosenberg.
“Typically, the acquisition and development process for ground-up is a two- to three-year process at a minimum. We are able to do it in eight to nine months,” he said. “In the high interest rate environment that we're in, this model works extremely well because we're able to operate quickly and get out of the construction debt much quicker than your typical ground-up construction development.”
As development opportunities in the city's most attractive neighborhoods become few and far between, the large supply of these types of motels presents Rosenberg with opportunities for growth.
“We're actively in the market looking and talking to the budget hotel world to find more opportunities here in Nashville,” Rosenberg said.
